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Opinions and conclusions arising from our audit Opinion on financial statements 1 Our opinion on the financial statements is unmodified We have audited the consolidated and Company financial statements (‗‗financial statements‘‘) of Ryanair Holdings plc for the year ended March 31, 2014, which comprise the consolidated and Company balance sheets, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated and Company statements of changes in shareholders‘ equity, the consolidated and Company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is Irish law and International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU), and, as regards the parent Company financial statements, as applied in accordance with the provisions of the Companies Acts, 1963 to 2013. Our audit was conducted in accordance with International Standards on Auditing (ISAs) (UK and Ireland).
In our opinion:
the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Group‘s affairs as at 31 March 2014 and of its profit for the year then ended;
the Company balance sheet gives a true and fair view, in accordance with IFRSs as adopted by the EU, as applied in accordance with the provisions of the Companies Acts 1963 to 2013, of the state of the Company‘s affairs as at 31 March 2014; and the financial statements have been properly prepared in accordance with the Companies Acts 1963 to 2013 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
Separate opinion in relation to IFRSs as issued by the IASB As explained in Note 1 on page 152 of the consolidated financial statements, the Group, in addition to complying with its legal obligation to comply with IFRSs as adopted by the EU, has also prepared its consolidated financial statements in compliance with IFRSs as issued by the IASB.
In our opinion:
the consolidated financial statements give a true and fair view, in accordance with IFRSs as issued by the IASB, of the state of the Group‘s affairs as at March 31, 2014 and of its profit for the year then ended.
2 Our assessment of the risks of material misstatement The risks of material misstatement detailed in this section of this report are those risks that we have deemed, in our professional judgement, to have had the greatest effect on: the overall audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team. Our audit procedures relating to these risks were designed in the context of our audit of the financial statements as a whole. Our opinion on the financial statements is not modified with respect to any of these risks, and we do not express an opinion on these individual risks.
In arriving at our audit opinion above on the Group financial statements the risks of material misstatement that
had the greatest effect on our Group audit were as follows:
Carrying value of Property, Plant & Equipment Ryanair has property, plant and equipment with a carrying value of €5,060.3 million at 31 March 2014 (2013 €4,906.3 million) including aircraft (including engines and related equipment) with a carrying value of €5,001.1 million (2013 €4,854.5 million). In accounting for these assets, Ryanair makes estimates about their expected useful lives, expected residual values and the potential for impairment based on the fair value of the assets and the cash flows they generate. Changes to the expected useful lives and/or the residual values of Ryanair‘s aircraft fleet could have a material impact on the profit for the year. This risk is described in the report from the Audit Committee on page 21. Ryanair flies one aircraft type, the Boeing 737-800, all of which are aged between one and 12 years. There is an active and established market for this asset class. The procedures we
performed to assess the carrying value of the aircraft included:
Comparing Ryanair‘s estimates of expected useful life and residual value to manufacturers‘ recommendations and to the published estimates of other international airlines.
Assessing the allocation of purchase price to the various components of the aircraft to ensure that the value allocated to its service potential compares with actual experience.
Independent Auditor‟s Report to the members of Ryanair Holdings plc (continued)
Opinions and conclusions arising from our audit (continued)
2 Our assessment of the risks of material misstatement (continued) Carrying value of Property, Plant & Equipment (continued) Agreeing the fair value of this aircraft type to generally available independent third party valuation reports prepared by specialist aircraft valuation experts to assess the accuracy of the residual value estimate.
Challenging the key assumptions underpinning Ryanair‘s near and medium term financial projections against historical performance and estimates of the likely economic conditions in its principal markets.
Maintenance expense Ryanair had 51 aircraft held under operating lease at 31 March 2014 (2013: 59 aircraft). Under the terms of operating lease agreements with aircraft lessors, Ryanair is contractually committed to either return the aircraft in a certain condition or to compensate the lessor based on the actual condition of the airframe, engines and life limited parts upon return. During the year ended 31 March 2014, Ryanair recorded maintenance expense of €116.1 million (2013: €120.7 million) and carried provisions for future maintenance at 31 March 2014 of €132.2 million (2013: €122.4 million). The estimated airframe and engine maintenance costs and the costs associated with the restitution of life limited parts are accrued and charged to profit and loss over the lease term for the individual contractual obligation, based on the present value of the major airframe overhaul, engine maintenance checks and restitution of life limited parts by reference to the number of hours flown or cycles operated during the year. This risk is further highlighted in the report from the Audit Committee on page 21.
Our audit procedures in this area involved testing the key assumptions made by Ryanair in estimating future maintenance costs including anticipated use of the aircraft and the expected cost of maintenance. The procedures included agreeing the actual cost of incurred maintenance to invoices and comparing this with Ryanair‘s estimates, agreeing estimated maintenance costs to maintenance contracts and agreeing the expected use of assets to aircraft utilisation in the prior periods and to Ryanair‘s scheduling plan.
Taxation Ryanair is headquartered and managed and controlled from Ireland. Nevertheless, Ryanair operates extensively across Europe and Morocco in North Africa. Airlines‘ profits on international flights are taxed in the country of residence of the airline which for Ryanair is Ireland. Profits from domestic flights which are flights within one country are often taxable in that jurisdiction. In addition to corporate taxes, Ryanair is subject to Value Added Tax (―VAT‖), passenger taxes (which are levies on passengers collected by Ryanair and paid to the relevant taxing authority) and taxes on employment. Due to the interplay between tax laws in individual jurisdictions and the nature of the industry whereby operations can begin and end in different jurisdictions, there is significant complexity in determining corporation tax liability, VAT and payroll tax obligations. This risk is further highlighted in the report from the Audit Committee on page 22.
Our audit procedures included:
Obtaining and inspecting Ryanair‘s various tax filings in the principal jurisdictions in which it operates and its correspondence with tax authorities.
Engaging KPMG tax specialists in each impacted jurisdiction to assist with our audit of Ryanair‘s tax obligations.
Challenging the key assumptions impacting on the critical estimates and judgements made by Ryanair in determining its tax liabilities.
Assessing whether Ryanair‘s disclosures repeated the risks inherent in the accounting for taxation balances and related contingencies.
Independent Auditor‟s Report to the members of Ryanair Holdings plc (continued) Opinions and conclusions arising from our audit (continued) 3 Our application of materiality and an overview of the scope of our audit Materiality is a term used to describe the acceptable level of precision in financial statements. Auditing standards describe a misstatement or an omission as ―material‖ if it could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. We identify a monetary amount ―materiality for the financial statements as a whole‖ based on this criteria and apply the concept of materiality in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming our opinion on them.
The materiality for the Group financial statements as a whole was set at €29.5 million. This has been calculated using a benchmark of the Group‘s profit before tax for the year from continuing operations which we have determined, in our professional judgment, to be the principal financial consideration for members of the company in assessing financial performance.
We agreed with the Audit Committee to report to it all corrected and uncorrected misstatements we identified through our audit with a value in excess of €1.4 million, in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds.
Ryanair is headquartered, managed and controlled from Ireland, and the audit work covering all of the Group‘s revenues, profit for the year and all of its assets and liabilities is undertaken by an audit team based in Dublin.
The Group has a number of subsidiary entities both in Ireland and in foreign jurisdictions. Statutory audits of these entities are performed by KPMG Ireland or one of its international affiliates in the local jurisdiction.
These audits are performed to local materiality levels. The statutory audits are not performed for group reporting purposes and are generally completed after the date of this report.
4 We have nothing to report in respect of the matters on which we are required to report by exception ISAs (UK and Ireland) require that we report to you if, based on the knowledge we acquired during our audit, we have identified information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
we have identified any inconsistencies between the knowledge we acquired during our audit and the directors‘ statement that they consider the annual report is fair, balanced and understandable and provides information necessary for shareholders to assess the entity‘s performance, business model and strategy; or the Report from the Audit Committee included in the Corporate Governance Report does not appropriately disclose those matters that we communicated to the Audit Committee.
The Listing Rules of the Irish Stock Exchange and UK Listing Authority require us to review:
the directors‘ statement, set out on page 28, in relation to going concern;
the part of the Corporate Governance Report relating to the company‘s compliance with the nine provisions of the UK Corporate Governance Code and the two provisions of the Irish Corporate Governance Annex specified for our review; and certain elements of disclosures in the report to shareholders by the Board of directors‘ remuneration.
In addition, the Companies Acts require us to report to you if, in our opinion, the disclosures of directors‘ remuneration and transactions specified by law are not made.
Independent Auditor‟s Report to the members of Ryanair Holdings plc (continued) Opinions and conclusions arising from our audit (continued) 5 Our conclusions on other matters on which we are required to report by the Companies Acts, 1963 to 2013 are set out below We have obtained all the information and explanations which we consider necessary for the purposes of our audit.
The Company statement of financial position is in agreement with the books of account and, in our opinion, proper books of account have been kept by the Company.
In our opinion the information given in the Directors‘ Report is consistent with the financial statements and the description in the Corporate Governance Statement of the main features of the internal control and risk management systems in relation to the process for preparing the Group financial statements is consistent with the Group financial statements.
The net assets of the Company, as stated in the Company balance sheet are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 March 2014 a financial situation which under Section 40(1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the Company.
Basis of our report, responsibilities and restrictions on use As explained more fully in the Directors‘ Responsibilities Statement set out on page 30, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group and Company financial statements in accordance with applicable law and International Standards on Auditing (ISAs) (UK and Ireland). Those standards require us to comply with the Financial Reporting Council‘s Ethical Standards for Auditors.